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![Page 1: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/1.jpg)
ECON 4009
Labor Economics I2013 Fall
Elliott FanEconomics, NTU
Lecture 1Economics of Labor, 2013 FallElliott Fan
Preface
![Page 2: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/2.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Objectives of the course
• This course is directed at undergraduate students who are motivated to develop professional knowledge about labor economics.
• Encourage critical thinking about empirical questions, particularly about the labor market (Note that I am not teaching “calculation economics”)
• Equip students with theoretical and empirical tools to identify causal relationship of interest.
![Page 3: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/3.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Prerequisite
• ECO20N02 (Microeconomics I & II)• ECON4015 (Econometrics I & II)
Without micro or econometrics background, you may run into difficulties understanding some models and/or arguments.
All lectures will be delivered and exams designed in English, but you are not required to hand in assignment and take the exams in English.
![Page 4: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/4.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Materials
• Required Text: George J. Borjas, Labor Economics (6th Edition)
• Better stick to this edition.
• Other reading materials:
Additional references, specified as required or recommended, will be occasionally linked to the course web page.
• Powerpoint slides, assignments, answers, and other reading materials will be available online.
• http://homepage.ntu.edu.tw/~elliottfan/labor.htm
![Page 5: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/5.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
About me
Elliott FanAssistant ProfessorEconomics DepartmentNational Taiwan University
• Email: [email protected]• Office hour: Wednesdays 11:10-12:00 / R404• Venue: Graduate Building R404
![Page 6: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/6.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Course evaluation
Part B: Tasks Weighting (%)
Assignments & Group presentation
Midterm examination
Final examination
30
30
40
TOTAL 100
Note: Except for emergency cases, no special consideration on grading will be granted.
6
![Page 7: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/7.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Exams• The scope is focused on but not limited to lecture notes,
textbook, required reading materials.
• Presentation topics and discussion are also under consideration.
• Numerical questions are not the only form.
![Page 8: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/8.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Group presentation• A group is required to conduct a presentation in class once. A group is
comprised of 2 students, and you should find your partners by yourselves. (please select a contact person for each group)
• Through teamwork, a group should select a topic (or asks for a assigned one), form interesting questions, develop analysis and possible answers, design and deliver the presentation.
• Each time one group is required to present a topic, and all remaining groups are required to make comments and/or raise questions.
• In general, all kinds of labor economics related topics can be considered. Available sources of topic can be found online, in pubic media, books, documentaries, academic journal articles etc.
• Talks, as well as all Q and A, can be delivered in English or Chinese. The length of the presentation is 20-minute long, followed by comments, discussion, and Q and A for another 10 minutes.
• After each presentation, the presenting group should submit the slides.
![Page 9: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/9.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Group presentation• Please form a group of 2 and submit the entire name list (with student
numbers) via email to me by 5pm Wednesday 25/09/2013. The presentation schedule of each group will be finalized in the following week.
• Each group should submit a written proposal (via email or in class) 2 weeks before the presentation date. The proposal should be clearly written, with reading materials, questions, and issues to be discussed specified in it. The proposal will be approved or required to be modified.
• Evaluation is based on both presentation and context, focusing on whether the questions raised are intriguing, arguments are legitimately made, evidence is profoundly provided. Additional points will be granted to citations of empirical evidence regarding Taiwan.
• I myself will demonstrate how to present a talk later.
![Page 10: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/10.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Regarding math
• I am assuming that all students have knowledge about learned fundamental calculus.
• This course will involve applications of various mathematic tools.
• Note that intuition is by any means more important than using math.
![Page 11: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/11.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Your teaching assistants
![Page 12: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/12.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
How to get a great mark
• Motivation is everything.
• Get involved. Be active.
• Make use of study group.
• Complete everything by yourself.
• Develop skills as well as intuition
![Page 13: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/13.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Additional marks
• Every week, I will incorporate a discussion on contemporary labor issues in the lecture.
• I will also play some videos from time to time, such as this one.
• Your participation is highly appreciated.
![Page 14: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/14.jpg)
ECON 4009
Labor Economics I2013 Fall
Elliott FanEconomics, NTU
Lecture 1Economics of Labor, 2013 FallElliott Fan
What is labor economics?
![Page 15: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/15.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Wiki’s definition
• Labor economics seeks to understand the functioning and dynamics of the markets for labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demands of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income.
![Page 16: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/16.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Approaches
Approaches:• Macro vs micro• Theoretical vs empirical• Positive vs normative analyses
Issues:• Traditional fields regarding labor supply, demand, and
equilibrium.• Newly developed fields relating to health, demographics,
education, and public policies.
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Lecture 1Economics of Labor, 2013Elliott Fan
Labor economists in Taiwan
• NTU (Jin-Tan Liu, Ming-Ching Luoh, Min-Jen Lin, etc.)• Academia Sinica (Kamhon Ken, Stacey Chen)• NCNU (Yen-Chien Chen)• NCU (Meng-Wen Tsou)
There are also not-so-labor applied economists:• NTU (Chun-Fang Jiang, Political Economics)• NCCU (Ming Lien, Health Economics)
![Page 18: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/18.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Theoretical and Empirical
• Economic theory helps tell us what happens if a LM parameter (e.g., a policy) changes
• To TEST a model, or to tell HOW LARGE a predicted effect is, we have to look to the data
• Big Problem: we are not physicists
![Page 19: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/19.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Regression Analysis
Log Wage
Slope = b
Change in log wage
Years of SchoolingChange in schooling
a
![Page 20: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/20.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Scatter Diagram: Wages and Schooling by Occupation, 2001
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Lecture 1Economics of Labor, 2013Elliott Fan
Choosing Among Lines Summarizing
Trends in the Data
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Lecture 1Economics of Labor, 2013Elliott Fan
The Best-Fit Regression Line
![Page 23: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/23.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Multiple Regression
• Extending regression analysis to include multiple independent variables
• Each estimated coefficient shows the impact of a particular variable on the dependent variable, other things constant
• Standard errors of the regression coefficients are used to evaluate significance of the relations between each particular variable and the dependent variable
![Page 24: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/24.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Causality issue: Earnings and Schooling (graph)
34375.7
39199.48
43758.37
59143.97
21918.44
27419.7429493.37
43713.85
2000
030
000
4000
050
000
6000
0
12
34
Schooling
1996 40 yr-old Male FT Earnings 1996 40 yr-old Female FT Earnings
![Page 25: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/25.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Implication and challenge:
• Implication from the graph: schooling seems to have positive effect on earnings.
• Challenge: need to control for other factors that may affect schooling and earnings simultaneously, e.g., family background, individual ability, etc.
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Lecture 1Economics of Labor, 2013Elliott Fan
Association versus Causation
• Correlation does not imply causation!
• 3 Possibilities explaining an association
1) Si Yi (causation)
2) Yi Si (reverse causation)
3) Zi Si & Zi Yi (other factors affect both S,Y)
![Page 27: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/27.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Example of random assignment in economics
• Marianne Bertrand and Sendhil Mullainathan send out thousands of resumes to different manual and service sector job openings (advertised in Boston and Chicago Newspapers)
• They randomize the names of the applicants: e.g. Lakisha versus Emily and Jamal versus Greg
![Page 28: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/28.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
What Bertrand and Mullainathan Did:
0 1
1 if indiv. receives call back for interview, 0 otherwise
1 if assigned name "Lakisha" 0 if assigned name "E
i i i
i
i
Callback BlackName e
Callback
BlackNamemily"
Note: with random assignment: and unrelated, even if we don't know what is
i i
i
e BlackNamee
![Page 29: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/29.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
29
Individuals given white sounding names about
twice as likely as getting callbacks!
![Page 30: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/30.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
What happens when researchers ignore omitted variables bias?
• Under the freedom of information act, the Toronto Star requests Toronto Police data on incidents and whether they led to arrests, and simple demographic information
• On March 18, 2003, Star reports that, relative to population size, blacks more likely arrested than whites
• Huge uproar, and accusations that results imply racial profiling
![Page 31: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/31.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
0 1
0 1
1 if indiv. arrested, 0 otherwise1 if isible minority, 0 otherwise
ˆ ˆStar finds: .04, .10(Visible Minorities More Than Twice as likely to Be arrested)Star C
i i i
i
i
Arrest VisMin eArrestVisMin v
oncludes Police Racial Profile
What Star did in the report:
![Page 32: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/32.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Any Possibility of Omitted Variables Bias?
Can we think of other variables that are related both to being a visible minority and being arrested?
e.g: on average, lower income, disadvantaged family background
Note: Not saying here that racial profiling does not exist, rather that this study is not able to tell
![Page 33: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/33.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
We will have to deal with omitted variable bias often in this course
• Always be skeptical about research quality (note ‘publication’ bias)
• Always question what are potential omitted variables
• Directly addressing skepticism with careful research design and analysis makes results so much more convincing
![Page 34: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/34.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
OVB formulaConsider a model:
where
Omitted variable bias formula:
it says: short equals long plus the effect of omitted times the regression of omitted on included.
i i i iY s X v
i i iX v
( , )
( )i i
i Xsi
Cov Y s
v s
![Page 35: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/35.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
A sample presentationIn you talk, a few components are required:
• A well-suited title
• Motivations (why the topic is interesting)
• One or more clearly defined questions to raised
• Answers to the questions
• Arguments (theory and evidence)
• Conclusions
• Your own comments or evaluation
![Page 36: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/36.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
A sample presentationA well-suited topic:
A discussion on:
![Page 37: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/37.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
A sample presentationMotivations of the paper:
• Sustainability is a major concern for many countries, including Taiwan.
• The 2005 reform was a significant one.
![Page 38: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/38.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Questions:
• Does the “equalizing differences theory” predicts the effect of the 2005 reform? (wage and pension contribution are perfect substitutes)
• Did the newly introduced program benefit workers in the private sector? If so, how much?
• Did the newly introduced program benefit workers in the public sector? If so, how much?
A sample presentation
![Page 39: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/39.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Methodology:
• Difference-in-difference method: estimate the change in (log) wage for private workers after the policy implementation, relative to the change for the public workers.
A sample presentation
![Page 40: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/40.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Results:
A sample presentation
![Page 41: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/41.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Conclusions:
• The prediction of the “equalizing differences theory” largely holds: Average wage for the private workers dropped by around 5.92%, amazingly close to the contribution rate, 7%, born by the employers.
• There was no parallel decline in wage for the public workers.
A sample presentation
![Page 42: ECON 4009 Labor Economics I 2013 Fall Elliott Fan Economics, NTU Lecture 1 Economics of Labor, 2013 Fall Elliott Fan Preface.](https://reader036.fdocuments.us/reader036/viewer/2022062321/56649dea5503460f94ae554f/html5/thumbnails/42.jpg)
Lecture 1Economics of Labor, 2013Elliott Fan
Comments:
• Public workers might not be an ideal control group.
• DinD method cannot rule out selection bias.
A sample presentation